What’s Behind the Great French and German Coronavirus Rescue Plans for Europe? | Instant News

For second in the past three years, France and Germany have worked together on an ambitious plan to save Europe – but this time big road map seems like it’s really going somewhere. This week’s Franco-German Declaration, “The Franco-German Initiative for the Recovery of Europe from the Coronavirus Crisis,” emerged when the European Union found itself immersed in a political and economic crisis after the COVID-19 pandemic and only a week. before the European Commission is set to unveil its own blueprint for recovery.

The main part of the Franco-German plan is a bold fund, 500 billion euros (around $ 550 billion) to help an ailing economy struggling to rebuild after the economic massacre due to months of total closure. The big question is whether opponents such as Austria and the Netherlands, who have long been opposed to taking tabs for what they see as wasteful Southern Europeans, will be persuaded to go along with an ambitious, pan-European rescue.

And the bigger question is whether Germany’s strong support, together with France, can push the European Union closer to the kind of more economical fiscal integration the Northern European countries, led by Berlin, have opposed in the past. The Franco-German proposal for the European Commission to issue debt and then provide grants if needed instead of direct debt sharing requested by southern states, dubbed “coronabonds” – but that was a step in that direction, marked a turnabout for Germany. And proposing to offer problematic regional grants rather than loans is a way to make recovery less painful – another important departure that is bringing Europe a little closer to fiscal transfers, another taboo subject.

“You can call it what you want, but it’s a large-scale reciprocal debt, it’s a different form of coronabond,” said J.H.H. Weiler, an expert in the European Union at New York University Law School. “It crosses certain lines.”

What exactly is being proposed by France and Germany?

The proposal is a four-pronged recovery plan, including health measures for more Europeans, and repackaging many of the big ideas that have emerged in Paris, Berlin and Brussels in recent years, including accelerating the green and digital transition and increasingly difficult screening. other Chinese and non-EU investments in strategic sectors such as energy and ports. But at the heart of this proposal is a 500 billion euro “recovery fund” that will allow the European Commission to borrow large amounts from the market, then channel the money in the form of grants to the sectors and regions that most need money to rebuild.

“They basically use something that the EU has done before, but use steroids,” said Mij Rahman, managing director for Europe at Eurasia Group.

Why is this a big problem?

Although these are only proposals from two of the 27 EU member states, this is a big step for various reasons. First, this is a Franco-German proposal – and when the two giants in the heart of the European Union clash in the same direction, it is difficult for other member states to refuse their pull.

“There are a number of projects supported by Germany and France that have been rejected outright,” Weiler said. And the joint proposal lays a marker for what the European recovery plan will look like, and how economic assistance should be prepared and provided, just as the European Commission prepares alone plan.

“France and Germany are pushing the commission in that direction. There are lots of good trains and choreography going on here,” Rahman said.

Importantly, the idea of ​​a recovery fund also offers possible solutions deadlock which has divided Europe since the pandemic outbreak. The more indebted South European countries, including Spain and Italy, are pressing some forms of European debt, or “coronabonds,” to help finance their economic recovery. But the less indebted Northern European countries, including the Netherlands but also Germany, flatly rejected the idea – making the South European countries boil with anger in the north and soak all European ideas.

Why did the Germans do this, if only shot down the idea of ​​eurobonds?

There are several reasons for new directions. Earlier this month, surprise in power, German Constitutional Court opens the door to legal challenges to the European Central Bank’s large bond purchase program. That means Europe’s single largest financial tool for dealing with pandemic damage can be made completely unavailable, which will create a greater North-South crisis in Europe. By joining France with this new proposal, German Chancellor Angela Merkel can make amends for a German court.

“The court’s decision finally became a catalyst,” Rahman said. “That changes the calculation.”

But there is also a direct economic collapse that needs to be dealt with, something that is increasingly difficult for countries that are underfunded with higher borrowing costs than Germany. By joining France to propose a large debt-funded grant program, Germany is aiming for the biggest short-term danger for the EU.

“Merkel looks at the situation in Europe and says, something must be done, there needs to be a way to channel funds to the south that does not add to their deficits,” said Eileen Keller, an expert on European economic integration in Europe. German-French Institute.

But there are many personal interests in the German move, too. So far, this is the largest economy in the EU and has benefited greatly from the common currency and single market. Protect it in the long run – even at the expense of angry some German voters are frugal in the short term – according to Merkel’s strategic view, Weiler said.

“What’s good for the country might not be popular politics. He is head and shoulders above his colleagues in matters of statesmanship, in terms of protecting Germany’s true national interests, “he said.

So what are the real prospects for this big proposal?

There are still many questions – above all, what are the details about how the recovery fund will work, and how the commission will distribute the money. The immediate challenge is to get countries like Austria (which has criticized the Franco-German proposal and said it would do it tone his own), the Netherlands, and some Scandinavians to reject their objections to something that looks like a shared debt and smells of fiscal transfers from rich to poor.

“Now it’s up to‘ four thrifty, ‘can they afford not to go where Germany has gone now? How long will Austria, Sweden and Denmark survive if Germany no longer supports them? “Rahman said.

Most likely, the Franco-German proposal will be trimmed and reshaped when the commission prepares its own package. “Save four” will want to see more loans than grants in aid packages, while Southern European countries will seek in vain even more than 500 billion euros. The result will most likely be a “typical European compromise” that pleases anyone except at least moving the ball forward, Weiler said.

And one big question will determine not only the political feasibility of new proposals, but also the real effectiveness in channeling funds where they are needed: the strings that come attached to the recovery money. Europe already has almost half a trillion euros in funds available for pandemic assistance under the European Stability Mechanism. But tapping money in the fund has traditionally come with stringent requirements on economic policy, budget management, and economic reforms, as found by Greece during the last major crisis a decade ago. As a result, the funds are in stigma—Like that, Spain, Italy, Portugal and Greece have refused to use pandemic funds which have almost no difficult conditions at all.

“Requirements have become very bitter pills, especially for Greece,” Keller said.

In their proposals, France and Germany alluded to some form of conditions, noting that access to recovery funds “will be based on a clear commitment from member states to follow sound economic policies and an ambitious reform agenda.” Finding out what ties to attach to the next large recovery fund will be a large part of the upcoming disputes between member states.

“We will see in negotiations what conditions they provide on grants – it will not be a free lunch,” Weiler said.

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